ITAT quashes Section 263 revision in J.B. Petit High School for Girls case

The Mumbai Bench “F” of the Income Tax Appellate Tribunal has set aside the revisionary order passed under Section 263 of the Income-tax Act, 1961, against J.B. Petit High School for Girls for Assessment Year 2022–23, holding that the Principal Commissioner of Income Tax (Exemptions) exceeded jurisdiction in a limited scrutiny case and that the assessment order was neither erroneous nor prejudicial to the interests of the Revenue.

Limited scrutiny cannot be expanded through Section 263

The assessee trust’s case was selected for limited scrutiny on the sole issue of “large amount of income accumulated or set apart by the trust.” The Assessing Officer examined this issue and completed the assessment under Section 143(3) read with Section 144B without making any addition. Subsequently, the PCIT invoked Section 263, alleging lack of enquiry on utilization of ₹3 crore accumulated earlier, receipts of ₹9.31 crore claimed as exempt, and application of income of ₹7.73 crore, and set aside the assessment for de novo consideration. The Tribunal noted that in a limited scrutiny case, the Assessing Officer is statutorily confined to the issue for which scrutiny is initiated, unless the case is converted into complete scrutiny following the prescribed procedure. Since no such conversion had taken place, the Assessing Officer could not have examined issues beyond the limited scrutiny parameter. Consequently, the Tribunal held that no fault could be found with the original assessment order on this count, rendering the assumption of jurisdiction under Section 263 unsustainable.

Accumulation and utilization duly explained on merits

Even on merits, the Tribunal found that the assessee had accumulated ₹3 crore for renovation and reconstruction of the school building, out of which ₹1.98 crore was actually utilized and reflected as capital work-in-progress in the audited balance sheet. The remaining ₹1.01 crore was correctly offered as deemed income in accordance with Section 11. These facts were supported by documentary evidence and were not disputed by the Revenue.

Holding that the twin conditions for invoking Section 263 were not satisfied, the Tribunal quashed the revision order and allowed the assessee’s appeal.